TMI Blog2014 (12) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same will be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, unless the assessee proves to the satisfaction of the AO that the price charged or paid in such transaction was computed in accordance with the provisions contained in section 92C of the Act and in the manner prescribed under that section, in good faith and with due diligence - Thus, the exception to the deemed concealment is the satisfaction of AO regarding international transaction that the same is computed in accordance with the TP provisions in good faith with due diligence - it cannot be said that the computation made by the assessee was not in good faith and not with due diligence - on the date of filing the return for the year under consideration the assessee was having benefit of orders passed by TPO in respect of AYs 2002-03, 2003-04 and 2004-05 - Thus, it cannot be said that the assessee’s action was not in good faith or it was not with due diligence - even applying the provisions of Explanation-7 to section 271(1)(c) of the Act, it cannot be said that levy of concealment penalty warranted – thus, the order of the CIT(A) for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing and export of jewellery studded with diamonds and precious stone in gold, silver and platinum. During the course of its business, from year to year the assessee had entered into international transactions with its AEs and is also being assessed on those transactions as per the order passed by the TPO. The assessee in its paper books has attached orders passed by TPO in respect of assessment years 2002- 03 to 2006-07, which was followed by the assessment orders passed under section 143(3) of the Income Tax Act, 1961(the Act). Copy of which is also enclosed in the paper book. Several international transactions with the AE, inter alia include payment of commission by the assessee to one individual namely Mr. Manfred Giloy ( except for A.Y 2005-06 in which assessee did not make sale to the concern on which commission was being paid to Mr. Manfred Giloy). The basis of commission being paid was the sales made by the assessee to M/s. Gemex Trading Company, which were stated to be paid in pursuance to agreement entered on 25/3/1998, the payment of which was supported by the permission of Reserve Bank of India vide letter dated 12/5/1998. The details of commission paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mere non-contesting of the addition cannot be taken as acceptance of the addition by the assessee of concealment. Reliance was also placed on several decisions to contend that mere rejection of the claim of the assessee cannot lead to imposition of concealment penalty. However, the AO did not accept these submissions of the assessee as sufficient for non-levy of concealment penalty and penalty was imposed. 3. The levy of penalty was contested in the appeal filed before Ld. CIT(A) and the contentions of the assessee have been summarized by Ld. CIT(A) as under: (a) A comparative study of the operating profits was given to the TPO in respect of the assessee and various other companies in the same business. The TPO has not considered these submissions but has proceeded to hold that no services are rendered by the AE. The Appellant submits that the TPO s duty is to determine the arm s length price and he has no jurisdiction to go beyond and examine whether the expenditure is for the purpose of business or not. (Please see the CBDT Instruction setting out the duties of the TPO on page 2, para(ii) of the paper book and the decision of the Delhi Tribunal in the case of Honda Siel C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not automatic and that merely because an addition is made, penalty is not automatically leviable. The Appellant submits that not only on the merits but also on the ground of limitation, the penalty should be cancelled . 3.1 On the above submissions Ld. CIT(A) has recorded a finding that penalty proceeding are separate from assessment proceedings. Merely because an addition has been made, irrespective of the fact that whether appeal filed or not, does not lead to a conclusion that case for concealment has been made. The consideration which will prevail in penalty proceedings would be different from what is applicable to the assessment proceedings. Referring to the facts Ld. CIT(A) has observed that commission was paid by the assessee from 1998 onwards in respect of business which Mr. Manfred Giloy was procured from M/s. Gemex Trading Ltd. The similar transaction was subject matter of TPO s scrutiny from assessment year 2002-03, 2003-04 and 2004-05 and after due examination no adjustment was proposed by TPO. For assessment year 2005-06 as there was no remittance to commission no expenditure was claimed. Thus, it is not a case where commission payment is made every year irrespec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR relied on the decision in the case of CIT vs. S.P.Viz Construction Company, 176 ITR 47 (Pat). Ld. AR further placed reliance on the decision of Delhi Benches of ITAT in the case of DCIT vs. Vertex Customer Services India Pvt. Ltd., 126 TTJ (Del) 184 to contend that in the TP adjustment where provisions for doubtful debt being an extra ordinary item, warranting exclusion from operational cost is a debatable point, therefore, it cannot be said that computation of arm s length price done by the assessee was not in good faith and not with due diligence, therefore, it was held that penalty was not leviable. Ld. AR also relied upon the decision in the case of VIP Industries Ltd. vs. IAC 36 ITD (Bom) 70, wherein it has been held that in view of admission of receipt of commission, commission could not be disallowed. Thus, it was pleaded by him that the payment made by the assessee was in pursuance to a contract, where rendering of services was not required. Thus, it was pleaded by Ld. AR that Ld. CIT(A) rightly cancelled the penalty. 7. In the re-joinder Ld. DR submitted that the decisions relied upon by Ld. AR are not applicable to the facts of the present case. Referring to the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of assessee was time barred and, therefore, was void-abnitio and for that reason impugned penalty cannot be levied. It is a fact that assessee has not challenged the assessment order by way of filing any appeal against that order. The assessment order is subsisting and has neither been set aside nor it has been shown to be quashed. Then the only question which is to be decided is that whether during the subsistence of the assessment order, it is open to the assessee to challenge the validity of assessment in the penalty proceedings. The decision relied upon by Ld. AR in the case of CIT vs. Viz Construction Company(supra) cannot be applied to the facts of the present case as in the said case assessment order was cancelled, whereas in the case of assessee it is subsisting. The decision in the case of S.S.Ratanchand Bholenath vs. CIT(supra) relied upon by Ld. DR is applicable and in the said decision it has been held that parties cannot seek to re-open an assessment order which has become final in the penalty proceedings. Similar proposition of law has also been upheld by Hon ble Allahabad High Court in the case of Bharat Rice Mills vs. CIT, 278 ITR 599, in which their Lordsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that considering the history of the case, Ld. CIT(A) did not commit any error in holding that the explanation furnished by the assessee was bona-fide and the claim was bona-fide in view of the accepted history of the case. Therefore, we decline to interfere in these findings recorded by Ld. CIT(A). 8.4 So far as it relates to the case of Revenue regarding Explanation-7 to section 271(1)(c), we are of the opinion that the explanation raises presumption that in a case where addition has been made as per TP provisions then the same will be deemed to represent the income in respect of which particulars have been concealed or inaccurate particulars have been furnished, unless the assessee proves to the satisfaction of the AO that the price charged or paid in such transaction was computed in accordance with the provisions contained in section 92C of the Act and in the manner prescribed under that section, in good faith and with due diligence. Thus, the exception to the deemed concealment is the satisfaction of AO regarding international transaction that the same is computed in accordance with the TP provisions in good faith with due diligence. In view of the accepted history of th ..... 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